(Bloomberg) — The offshore yuan tumbled the most in almost seven months after China’s central bank took steps to restrain the currency’s rally.

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The exchange rate slumped as much as 1.03% against the dollar in late Hong Kong trade on Monday. Declines steepened without an obvious trigger just before the 4:30 p.m. official close of the onshore rate, which helps determine the next day’s reference rate. The drop may mark the start of a period of consolidation after recent gains, strategists said.

The People’s Bank of China on Saturday scrapped a two-year rule that made it expensive to bet against the yuan after the currency surged to its highest in 18 months. The PBOC had in recent weeks refrained from sending clear signals on the yuan, reinforcing speculation that policy makers looking to boost consumption at home wanted a stronger yuan.

But as gains accelerated, it appears officials grew concerned the currency risked becoming a one-way bet. Reasons to buy the yuan were many. Polls showing Democrat Joe Biden may win the election. Failed U.S. stimulus talks driving the dollar lower. An attractive yield gap over Treasuries. An upcoming Communist Party plenum this month where stimulus measures are expected to be announced.

“China is just taking preemptive action to keep the yuan steady as the U.S. election could add even more appreciation pressure,” said Ken Cheung, chief Asia currency strategist at Mizuho Bank Ltd. “The yuan will be anchored for the time being — we see it trading in a 6.7-6.8 range in the near term.”



chart: PBOC acts to restrain bullish bets on the yuan


© Bloomberg
PBOC acts to restrain bullish bets on the yuan

The offshore rate was down almost 0.9% at 6.745 at 7:06 p.m., while on the onshore yuan last traded at 6.749.

The late slump may have been driven by short covering.